What type of loan is privately insured against loss in the event of default and foreclosure?

The correct answer is a loan that is privately insured against loss in the event of default and foreclosure, which is a conventional insured loan. This type of loan typically involves private mortgage insurance (PMI). PMI is used to protect the lender in case the borrower defaults on the loan. This is particularly relevant when the down payment is less than 20% of the home's purchase price.

Conventional loans are not backed by the government, unlike FHA and VA loans, which are government-insured or guaranteed. Therefore, the insurance for conventional loans is sourced from private companies. Because PMI is specifically designed to help lenders mitigate their risk, these loans are pertinent for borrowers unable to make a large down payment, while still allowing them access to home ownership.

The other options, such as FHA and VA loans, provide their own form of insurance and guarantees, but these are not private in nature. FHA loans are insured by the Federal Housing Administration, and VA loans are guaranteed by the Department of Veterans Affairs, representing government-backed programs designed to support specific borrower situations. Rural development loans also fall under government assistance programs aimed at promoting housing in rural areas, reinforcing that they do not align with the characteristics of a privately insured loan.